Taking a closer look at just compensation: state regulation of groundwater withdrawals as an appropriate use of their police powers.

• Author: Seaton, Kathryn

1. INTRODUCTION II. BACKGROUND A. Status of Contemporary Groundwater Ownership B. Management of Groundwater 1. Historical Regimes 2. Modern Permitting Systems and Associated Litigation C. The Takings Doctrine in the Context of Water Rights 1. Regulatory Takings 2. Lucas Takings D. Police Powers of the States III. ANALYSIS A. Noxious Use Theory 1. Preventing a Public Harm v. Providing a Public Good (Noxious Use Theory) 2. "Creation of the Harm" Theory B. Diminution of Value Theory 1. When Does a Property Right Exist? 2. How Much Diminution Is Too Much? IV. RECOMMENDATIONS A. Recommendations to the Courts B. Recommendations to Prospective Groundwater Right Investors V. CONCLUSION I. INTRODUCTION

   A conflict arises when the states' power to regulate pursuant to their police powers without providing compensation meets the demands of the Fifth Amendment as applied to the states through section five of the Fourteenth Amendment. (1) The Supreme Court has not articulated one single coherent takings theory but rather draws from several conflicting theories and applies them "somewhat haphazardly." (2) This Note does not offer to the Court a new and improved takings test that might resolve the inconsistencies in the test as currently applied. (3) Rather this Note seeks to elaborate on the arguments which may allow the Court to find--within some version of its current takings jurisprudence--that state regulation of groundwater is a permissible use of the states' police powers and therefore, no compensation is owed under the Fifth Amendment. Because groundwater rights have only recently become a hotly litigated issue, much of the Court's takings jurisprudence does not address groundwater specifically. This Note, therefore, will examine general takings jurisprudence as well as claims about surface water rights to assess how this legal regime might be applied to groundwater.

   Part II provides a description of the status of groundwater rights in this country which has prompted states to enact new groundwater regulations and brought the takings issue to the attention of the courts. Part II also outlines the basics of the Court's takings jurisprudence, with an eye to its application to groundwater and water rights, and with an acknowledgement of the inconsistencies therein. Finally, Part II attempts to make sense of the Court's historical and contemporary understanding of the states' police powers.

   Part III analyzes the various understandings of the Fifth Amendment takings clause that the Court has relied upon over the years. Part III offers an explanation of what is necessary to put a regulation within each understanding of the takings clause, as well as noting the shortfalls of each theory. Part III also provides examples of how groundwater rights regulations might be analyzed under each theory.

   Finally, Part IV recommends the Court uphold state groundwater regulation as a permissible use of the states' police powers, regardless of which takings theory it applies. This result is most respectful of the respective role of the states and the federal judiciary. Part IV also discusses the implications for groundwater rights holders if the Court were to accept this recommendation.

2. BACKGROUND

   1. Status of Contemporary Groundwater Ownership

      Groundwater rights in the united States are increasingly ending up in the hands of corporations (for example, American Water owns 500 groundwater treatment plants and 1000 groundwater wells, (4) and Aqua American has 30 groundwater wells in Illinois alone) (5) or individuals seeking to derive profit from the right. (6) As municipalities struggle to provide water and sanitation services to the public, the sale of their water rights to a corporation who assumes responsibility for water delivery and infrastructure maintenance becomes an attractive option. (7) Beyond the privatization of municipal water, bottled water consumption has risen, resulting in a growth in the bottled water industry and subsequent increases in withdrawals of groundwater. (8)

   2. Management of Groundwater

      1. Historical Regimes

         Historically, groundwater management focused on maximum use and development, without much focus on conservation or the sustainability of withdrawals. (9) At common law, the states regulated groundwater through one of five different doctrines: (1) the doctrine of capture, (2) American reasonable use, (3) correlative rights, (4) Restatement (Second) of Torts Section 858, and (5) prior appropriation. (10) All of these systems recognize some kind of property interest in groundwater, and most of them are distinctly different than the common law doctrines for management of surface water. (11) This result flowed naturally from the lack of scientific knowledge about groundwater generally and the interconnected hydrology of groundwater and surface water more specifically. (12) Despite advances in scientific knowledge, some states continue to employ common law doctrines to this day. (13)

      2. Modern Permitting Systems and Associated Litigation

         As early as 1890, recognizing the relative importance of groundwater, (14) states began shifting management of their groundwater (and surface water) over to permit-based systems. (15) Problems associated with the switch to permitting systems are not only a historical phenomenon but continue to this day, particularly as groundwater withdrawals intensify in response to recent droughts. (16) The proliferation of regulation over groundwater withdrawals, thought of by some as exclusively private property rights, has come into conflict with the emerging property-rights movement. (17) The property-rights movement views any regulation of any property right as a taking requiring compensation under the Fifth Amendment. (18) The judicial wing of this movement, christened the "Takings Project," (19) has focused on bringing Fifth Amendment takings claims to challenge popularly enacted health, safety, and environmental legislation when it places any burden on development. (20) While this movement began with a focus on land-use disputes, (21) it has recently turned its attention to groundwater regulation. (22)

   3. The Takings Doctrine in the Context of Water Rights

      The takings clause of the Fifth Amendment states: "nor shall private property be taken for public use, without just compensation." (23) Through the due process clause of the Fourteenth Amendment, this restriction has been extended to govern the activities of the states as well. (24) In takings litigation, as well as in water rights litigation, litigants recognize the government's right to take property for public use. The litigation, therefore, focuses not on whether the government can take the property but rather on if and how much compensation the government owes. (25) The Court has recognized three categories of takings: physical takings, regulatory takings, and categorical regulatory takings (also known as Lucas takings). (26) In the context of water rights litigation the latter two categories are of the most importance. (27)

      1. Regulatory Takings

         The Court first announced its regulatory takings analysis in 1922 in Pennsylvania Coal Company v. Mahon (28) In 1978, the Court laid down the modern balancing test for regulatory takings claims in Penn Central Transportation Company v. City of New York. (29) The Court described the test as an "ad hoc, factual inquir[y]" which considers (1) "the character of the governments] action," (2) "[t]he economic impact of the regulation on the" property owner, and (3) "the extent to which the regulation ... interfere[s] with ... [the property owner's reasonable] investment-backed expectations...." (30)

      2. Lucas Takings

         In Lucas v. South Carolina Coastal Council, the Court articulated a new principle for a specific kind of regulatory taking. (31) Justice Scalia, writing for a majority of the Court, announced "a new per se rule that expanded the idea of a [regulatory] taking to require compensation for regulations that deny 'all economically beneficial or productive use of [their property].'" (32) While property rights activists viewed Lucas as heralding a new dawn of protection of property rights, that dawn never rose. (33) Shortly after its advent, the Court made clear the Lucas categorical takings rule is an extremely narrow exception. (34) The exception is "limited to 'the extraordinary circumstance when no productive or economically beneficial use of land is permitted'.... Anything less than a 'complete elimination of value,' or a 'total loss' ... would require the kind of analysis applied in Penn Central." (35)

   4. Police Powers of the States

      The states' police powers are an often invoked but ill-defined area of governmental power. (36) "Police powers" are commonly described as the states' power to regulate for the "health, safety, welfare, and morals of the people." (37) A narrow view of the police powers sees them as limited to the power to pass legislation "so clearly necessary to the safety, comfort, or well-being of society, or so imperatively required by public necessity...." (38) As early as 1824, however, Justice Marshall articulated a broad definition of the police powers:

      [T]hat immense mass of legislation which embraces everything within the territory of a state not surrendered to a general government; all of which can be most advantageously exercised by the states themselves. Inspection laws, quarantine laws, health laws of every description, as well as laws for regulating the internal commerce of a State, and those which respect turnpike roads, ferries, etc., are component parts of this mass. (39) This definition understands the police powers to encompass all the powers that remained with the states after the ratification of the Constitution. (40) Within the context of a takings claim, the police powers of the states and the public use requirement of the takings clause have been held to be coterminous. (41) This Note focuses on the police powers as a limit to a...